CLEP® Principles of Microeconomics Examination Guide

Principles of Microeconomics

Overview

The Principles of Microeconomics exam covers material that is usually taught in a one-semester undergraduate course in introductory microeconomics, including economic principles that apply to the behavioral analysis of individual consumers and businesses. You will be required to apply analytical techniques to hypothetical as well as real-world situations and to analyze and evaluate economic decisions. You're expected to demonstrate an understanding of how free markets work and allocate resources efficiently, how individual consumers make economic decisions to maximize utility, and how individual firms make decisions to maximize profits. You must be able to identify the characteristics of the different market structures and analyze the behavior of firms in terms of price and output decisions. You should also be able to evaluate the outcome in each market structure with respect to economic efficiency, identify cases in which private markets fail to allocate resources efficiently, and explain how government intervention fixes or fails to fix the resource allocation problem. It is also important to understand the determination of wages and other input prices in factor markets, and be able to analyze and evaluate the distribution of income.

The exam contains approximately 80 questions to be answered in 90 minutes. Some of these are pretest questions that will not be scored. Any time test takers spend on tutorials and providing personal information is in addition to the actual testing time.

Knowledge and Skills Required

Questions on the Principles of Microeconomics exam require test takers to demonstrate one or more of the following abilities.

Understanding of important economic terms and concepts

Interpretation and manipulation of economic graphs

Interpretation and evaluation of economic data

Application of simple economic models

The subject matter of the Principles of Microeconomics exam is drawn from the following topics. The percentages next to the main topics indicate the approximate percentage of exam questions on that topic.

Basic Economic Concepts (8%–14%)

Scarcity, choice, and opportunity cost

Production possibilities curve

Comparative advantage, specialization, and trade

Economic systems

Property rights and the role of incentives

Marginal analysis

The Nature and Functions of Product Markets (55%–70%)

15%–20% Supply and demand

Market equilibrium

Determinants of supply and demand

Price and quantity controls

Elasticity

Price, income, and cross-price elasticities of demand

Price elasticity of supply

Consumer surplus, producer surplus, and market efficiency

Tax incidence and deadweight loss

5%–10% Theory of consumer choice

Total utility and marginal utility

Utility maximization: equalizing marginal utility per dollar

Individual and market demand curves

Income and substitution effects

10%–15% Production and costs

Production functions: short and long run

Marginal product and diminishing returns

Short-run costs

Long-run costs and economies of scale

Cost minimizing input combination

23%–33% Firm behavior and market structure

Profit

Accounting versus economic profits

Normal profit

Profit maximization: MR=MC rule

Perfect competition

Profit maximization

Short-run supply and shut-down decision

Firm and market behaviors in short-run and long-run equilibria

Efficiency and perfect competition

Monopoly

Sources of market power

Profit maximization

Inefficiency of monopoly

Price discrimination

Oligopoly

Interdependence, collusion, and cartels

Game theory and strategic behavior

Monopolistic competition

Product differentiation and role of advertising

Profit maximization

Short-run and long-run equilibrium

Excess capacity and inefficiency

Factor Markets (8%–14%)

Derived factor demand

Marginal revenue product

Labor market and firms' hiring of labor

Market distribution of income

Market Failure and the Role of Government (10%–16%)

Externalities

Marginal social benefit and marginal social cost

Positive externalities

Negative externalities

Remedies

Public goods

Public versus private goods

Provision of public goods

Public policy to promote competition

Antitrust policy

Regulation

Income distribution

Equity

Sources of income inequality

Study Resources

Most textbooks used in college-level introductory microeconomics courses cover the topics in the outline given earlier, but the approaches to certain topics and the emphases given to them may differ. To prepare for the Principles of Microeconomics exam, it is advisable to study one or more college textbooks, which can be found in most college bookstores. When selecting a textbook, check the table of contents against the knowledge and skills required for this test.

There are many introductory economics textbooks that vary greatly in difficulty. Some books are published in one-volume editions that cover both microeconomics and macroeconomics; some of the texts listed here are published in two-volume editions, with one volume covering macroeconomics and the other microeconomics. A companion study guide/workbook is available for most textbooks. The study guides typically include brief reviews, definitions of key concepts, problem sets, and multiple-choice test questions with answers. Many publishers also make available computer-assisted learning packages as companions to these texts.

Textbooks

A survey conducted by CLEP found that the following textbooks are among those used by college faculty who teach the equivalent course. You might purchase one or more of these online or at your local college bookstore.

Stiglitz and Walsh, Principles of Macroeconomics and Principles of Microeconomics (W.W. Norton)

Taylor and Weerapana, Principles of Macroeconomics and Principles of Microeconomics (South-Western)

Online Resources

These resources, compiled by the CLEP test development committee and staff members, may help you study for your exam. However, none of these sources are designed specifically to provide preparation for a CLEP exam. The College Board has no control over their content and cannot vouch for accuracy.

To broaden your knowledge of economic issues, you may read relevant articles published in the economics periodicals that are available in most college libraries. Magazines like The Economist and newspapers like The Wall Street Journal and The New York Times, along with local papers, may also enhance your understanding of economic issues.

Score Information

Credit Granting Score for Principles of Microeconomics

ACE Recommended Score*: 50
Semester Hours: 3

Each institution reserves the right to set its own credit-granting policy, which may differ from that of ACE. Contact your college as soon as possible to find out the score it requires to grant credit, the number of credit hours granted, and the course(s) that can be bypassed with a satisfactory score.

*The American Council on Education’s College Credit Recommendation Service (ACE CREDIT) has evaluated CLEP processes and procedures for developing, administering, and scoring the exams. The score listed above is equivalent to a grade of C in the corresponding course. The American Council on Education, the major coordinating body for all the nation’s higher education institutions, seeks to provide leadership and a unifying voice on key higher education issues and to influence public policy through advocacy, research, and program initiatives. Visit the ACE CREDIT website for more information.